Reflections on Greece and Europe

Interview carried out for FIGAROVOX on Friday, August 21st, by Alexandre Devecchio. Long version.

Kindly translated by Anne-Marie de Grazia

The third aid plan for Greece in five years, amounting to 86 billion euros has been implemented. The ministers of finances of the Eurozone have approved on Wednesday night the release of a first slice of 26 billion euros. Greece was able on Thursday to reimburse on the dot and without drama 3.4 billions to the ECB. Is this good news?

The reimbursements made by Greece (to the European Central Bank) have been anticipated and organized over the past few days. But we must guard ourselves against all optimism. The plan said to be of help to Greece, which is essentially aiming at insuring the country’s short time solvability in return for conditions which are downright draconian, will allow Greece to reimburse its creditors. In fact, the European Union will be lending money in order to be reimbursed. This is an absurd mechanism which is not going to pull Greece out of the crisis. It will not even guarantee Greece’s seat inside the Eurozone[1], but it will impose new sacrifices onto the population, at a dead loss. One can well sense that the Euro is by no means saved[2], and as far as Greece is concerned, the worst part of it is that this plan is going to drag it down deeper, all the time while organizing an immense spoliation of assets belonging to the Greek government[3] for the benefit of a few companies, essentially German. Greece will again be in a depression when one consider the results of the 3rd and especially the 4th quarter. The results of the 2nd quarter, a growth of 0,8%, were mostly due to precautionary purchases by the Greek population during the month of June, and to the impact of tourism. With the economic asphyxiation organized by the European Central Bank beginning June 26th, it is evident that the results of the 3rd quarter will be very bad.

This depression, which is in reality organized by the so-called help plan, will continue during 2016 and probably later. Such is the reality of facts. To pretend the opposite is at self-deception, at worst downright lying. Under such conditions, speaking of Greece having regained its solvability is taking on surrealist dimensions. Technically, Greece can reimburse what it owes, but with the help of an additional loan. This is called in economy a “Ponzi scheme,” a financial pyramid such as we have known in the 1990s in Russia and in the former socialist countries. With the help of such a pyramid, Greece’s debt will reach 200% of GDP. This goes to prove that the policies implemented by a whole succession of memoranda are not working.

Is it not somewhat peremptory to condemn this plan in advance?

The main economists knowing Greece, and even the International Monetary Fund, have all condemned this plan. The IMF by the way does not want to participate in the plan if an annulment of at least 35% of the Greek debt is not consented[4]. However, without the participation of the IMF in the plan, it will not be possible to mobilize the ESM (European Solidarity Mechanism) in order to find some of the money. The conflict which is now open between the Eurogroup and the IMF undermines any possibility for this plan to succeed.

One must understand reasons of the quasi unanimous condemnation by the community of economists. In the macroeconomic domain, this plan is organizing a very strong contraction in domestic demand and it will destabilize the society by compromising the mechanisms of intergenerational transfers, which had been up to now serving as buffers against the social crisis. This, in reality, is what is at stake in the armwrestling taking place between the Greek government and the creditors concerning the matter of pensions. Given the scantness of unemployment benefits, one part of the population survived solely on transfers made by their parents. In organizing a brutal reduction of the amount of pensions, one hits the whole of the population, not just the pensioners. We must, on this point, read the criticisms of this plan made by Yanis Varoufakis on his blog[5].

Concerning structural reforms, the announced privatizations will have at present no positive effect. They are solely a right given to foreign companies to buy up public companies for a pittance. The German consortium Fraport which today is buying 14 among the most profitable regional Greek airports for the ridiculous sum of 1.23 billion is none other than the one which was supposed to acquire them in 2014[6]. We must add to this that this consortium happens to be the property of the German government. The European authorities, generally so keen on spotting conflicts of interests, have in this case kept their eyes shut… The privatizations would have made sense only if they had been accompanied with precise commitments, assorted with figures, by these foreign companies to invest in Greece, meaning, to bring new money into the Greek economy. There is no talk of this and the 3rd memorandum results in fact in disarticulating the embryo of a privatization policy which the Greek government had started elaborating. If we recapitulate, the “plan” is organizing a drop in incomes and in the domestic demand of households, it does in no way organize any investment transfers for the benefit of Greece, and it will in fact favor the structure of corruption and collusions which has been denounced by the Minister of finances Yanis Varoufakis during his tenure. All this in a country which has already gone through five years of economic depression, where unemployment is at 28% and where productive investments have collapsed. One could possibly do worse but, but save for exploding an atom bomb over Athens, it would be difficult.

Alexis Tsipras has indeed announced his resignation on Thursday evening, in order to precipitate anticipated elections on September 20th. He has not succeeded in putting an end to austerity in Greece. How do you explain such a failure?

The truth is that, without getting out of the Euro, Tsipras could not have put an end to austerity. Then one must understand the “why” in his resignation and in the convocation of anticipated elections. Alexis Tsipras’ resignation is in reality most logical. The government no longer has a majority and can only pass the measures imposed by the Eurozone thanks to the votes of the opposition, as we have seen for the ratification of the agreement of July 13 and for the ratification of the 3rd memorandum. Moreover, Tsipras knows that he remains presently more popular than the Greek right (New Democracy, or two lies bundled in one) whereas the center-left parties are largely discredited (PASOK, the so-called socialist party, and To Potami, a party constituted by a Greek oligarch with the support of eurocrats from Brussels)[7]. Tsipras’ fear is that the left wing of SYRIZA will rapidly acquire a considerable influence. For on Friday August 21, 29 deputies of SYRIZA have defected in order to create a movement of Popular Unity. Their coordinator, Panagiotis Lafazanis, does not conceal the fact that is resolved, if needed, to exit from the Euro[8]. The latest opinion polls show, indeed, that the gap between the partisans and the adversaries of the Euro has drastically reduced itself during the past weeks.

Under such conditions, it was logical for Tsipras to rapidly call snap elections. He hopes to have again the majority (and in the Greek electoral system, any party arriving in first position gets a bonus of 50 seats of the 300 making up the Parliament). The risk, for Tsipras, will not come from the New Democracy, which remains largely discredited, but from the score reached by the new party born of the scission within SYRIZA. If this party scores at least 5% to 6% of the votes, which would already be an exploit for a political formation which has just been created and which will have only one month to make itself known to the voters, SYRIZA can probably gather between 25% and 26% of the votes, get the 50 seats bonus and seek an alliance with one of the pro-memorandum parties. But if Popular Unity, the scission off SYRIZA, succeeds in capitalizing on the ground-swell which has brought the « no » to 61% of suffrages at the referendum of July 5th, and reaches beyond 10% of the votes, the situation will become much more difficult. The more so that one will have to expect a strong growth in the extreme-right (Golden Dawn) which is playing on the trauma of Tsipras’ capitulation but also on the refugees crisis which has been unfolding during July and August in Greece.

Tsipras’ resignation is a political gamble. It is neither a gesture of renouncement, nor one of folly. It is in reality a speed contest between Tsipras and his opponents. Tsipras is gambling that his popularity will carry him through, by force of inertia, until September 20th against a powerful rise of the left. But this is only a calculation. The Greek voter will here be the justice of the peace.

What will have been his major mistakes during the eight months of his mandate?

There has clearly been a strategic defeat of Tsipras in his confrontation with the creditors and the Eurogroup. It’s the failure of a strategy pretending to impose a change of orientation onto the European Union and the Eurogroup from the inside. This failure results from the fact that Tsipras shut himself up deliberately in a position leading him to prefer a bad agreement to a break-up. It was his choice. Yet, this did not happen without debate. A theory now in fashion, in far-left circles as well as among some sovereignists, claims today that this result, the capitualtion of July 13th, was inscribed in the program of SYRIZA. This is a reconstruction of facts which doesn’t resist analysis. Already before the elections of January 25th (in fact as early as beginning of December 2014), we now know that Tsipras and Varoufakis had anticipated the pressures and the threats which the Eurogroup would use against Greece. The whole meaning of the “plan B” developed by Varoufakis was precisely to give a breathing space to the Greek government in case, as it actually happened, the Eurogroup and the European Central Bank would seek to strangle Greece. But the logic of the “plan B” ended up in preparing to exit the Euro. For essentially ideological reasons, this was turned down by Tsipras. For, if Varoufakis had pronounced himself for the Euro under certain conditions, he was fully aware that the logic of « plan B » might drive him to an exit from the Euro, and he had accepted this[9]. Varoufakis’ position on the Euro has therefore evolved between January and June. He continues today to think that the exit from the Euro is an “evil,” but a “lesser evil” in comparison with the acceptance of the agreement of July 13th and of the 3rd memorandum which, for him, correspond to absolute evil.

This strategic error having been committed, and it is important to understand that everything became decided only during the night of July 5th to 6th 2015, meaning after the referendum in which the « No » had largely won (with over 61% of suffrages expressed), the capitulation of July 13th could only follow. This capitulation resulting from the strategic error then committed, and not from an inevitable and insufferable coercion, as Pierre Laurent, the national secretary of the French Communist Party is attempting, rather piteously, to justify it. [10].

Tactically, Varoufakis lead the negotiation well. The various proposals put forward by the Greek government made sense. The Greek government did not reject all measures of savings, but it tied them in, justifiably, with measures for re-boosting the economy. Contrarily to the image given by a certain press, these negotiations were not a “refusal” of all measures on the side of the Greek government. Quite in the contrary; in fact, Tispras as well as Varoufakis were perfectly aware of the disorders affecting the Greek state, its tax system, and of the extravagant importance of the role played by oligarchs in the Greek economy. But the Eurogroup has systematically refused all negotiations, less for economic than for political reasons. There was a purpose to punish the government and the Greek people, and a deep and explicit contempt for democracy. In fact, the European Union (and the Eurogroup) accepts elections only if the results of the latter goes its own way. This tells us a lot about the spirit of “democracy” which impregnates the European leaders and this constitutes, as such, one of the major problems revealed by the Greek crisis.

What was the decisive turn?

In terms of decision, it was evidently the night of July 5th to 6th and the reunion of the narrow committee within the government, in which Varoufakis was put in minority. It appears to me, when I reread the exchanges I have had with his secretariat, that he was resolved to crossing the Rubicon and not only nationalizing the Greek banks, but also to requisition the Central Bank of Greece. He was fully aware that this would provoke the break-up with the Eurogroup and the exit of Greece from the Euro. In that situation, Greece would have immediately defaulted on its sovereign debt, which would have put it in a position of strength for the following negotiations with its creditors. Those who say that Tsipras then took the only possible decision either do not now the course of events or, more probably, are lying in full knowledge of the truth.

Yet one can think that a more subtle turn was taken, by default, when Tsipras did not follow up on Varoufakis’ proposals to activate part of this famous « plan B » as early as the beginning of May. This would have permitted, doubtlessly, the Greek government to be in a stronger position at the beginning of the confrontation with the European authorities on June 26th. One can also think that Varoufakis, then in full personal evolution, could have and should kept more in contact with the left wing of SYRIZA in order to find there the political support which might have allowed him to modify the balance of forces[11]. But one must also know that during April and May 2015 Varoufakis was negotiating foot on foot with the Eurogroup and the European Commission. And there are only 24 hours in a day…

However, whatever date one choses, it is evident that the game was open until the referendum of July 5th. Once more, the statement according to which the capitulation of July 13th was inscribed in SYRIZA’s program is a lie, or at least, it is taking liberties with the reality of facts. It ignores the confrontations and debates which took place between January and June. But, one may be able to say that, for having limited the debate to the central instances of SYRIZA, Varoufakis has very probably weakened his position and locked himself up in the trap of which he became the victim.

Does this failure rule in favor of those who maintain that there is only one possible policy?

This is clearly going to be the message, which the europeist circles in Brussels and elsewhere will be trying to foist upon the media. They will pull back out of the closet Margaret Thatcher’s old « TINA » (There Is No Alternative). And, with no loss of irony, it will be the politicians pretending to be from the “left” who will make the greatest use of it, from François Hollande to Pierre Laurent, over Pierre Moscovici. But this in no way corresponds to the truth. The existence of the « plan B » being one proof that, in the contrary, another kind of policy was then, and still is, possible. However, we must understand that this other policy implies, at one time or another, a break-up with the Euro and with the European Union. What the Greek crisis, which from all evidence is far from over, is teaching us, is that there is no other policy possible within the framework of the Euro. This evidence has come to hit hard those who, to the left, and in all honesty, were holding up a « pro-Euro » as well as an anti-austerity discourse. These two discourses are incompatible, as we can see today. Either one accepts austerity, with the possibility to negotiate some tidbits of it, like the weight of the chains and the duration of slavery, and then one can keep the Euro, or else one refuses austerity but this then implies an exit from the Euro. [12].

The Euro has become an obstacle to democracy (as we have seen in Greece) as well as to policies favoring labor and opposed to finance. However, these questions by no means exhaust the subject. The Euro has, in reality accentuated and generalized the process of financiarization of the economies which we have known for close to 15 years[13]. It is because of the Euro that the great European banks have gone looking for subprimes in the United States with the consequences we know since the crisis of 2008. So that, not only has the Eurozone dragged part of Europe into very weak growth [14], but neither did it protect it, contrarily to what politicians are very imprudently claiming, from the financial crisis of 2007-2009. So that the result is clear. If policies nefarious to economies can be implemented outside of the Euro, the latter implies nefarious policies. In fact, no other economic policy is possible as long as one is inside the Euro. This is indeed one of the lessons of the Greek cisis. So that a dismantling of the Eurozone appears indeed to be a priority task.

We have had therefore, because of the Greek crisis, an important clarification of the debate, be it in Greece or in Europe and in France in particular. Positions have begun to move within the radical left and many eyes have become open.

How can one rebuild an alternative to the current European policies?

If one considers the alternative as being a break-up with the Euro, and I must remind you that there cannot be another policy except on the basis of an exit from the Euro, then this alternative implies the association of forces of the left with forces of sovereignism. One must note, on the question of the Euro, an important evolution within the forces of the left, including in France, if one watches closely the evolutions of J-L. Mélenchon and especially of Eric Coquerel[15] on this point. This is also what an article published in The Guardian on July 14th, that is, one day after the capitulation of Tsipras, calling for an « exit of the left » or a « lexit »[16]. This is, implicitely, the meaning of the appeal of Stefano Fassina, who was one of the leaders of the Democratic Party in Italy (and former vice-minister of economy in the Letta government), an appeal which was picked up on the blog of Yanis Varoufakis[17]. It was also the meaning of the article by Oskar Lafontaine, former leader of the SPD and a founding member of Die Linke, who, in 2013, called for the dissolution of the Euro[18]. The debate has been picked up since through the intervention of Mrs Sahra Wagenknecht, co-president of the parliamentary group of the leftists party Die Linke at the Bundestag, in the newspaper „Die Welt“[19]. But this alternative will remain meaningless unless it broadens itself to include all of the forces who, today, are calling for an exit from the Euro. From the moment that one gives to oneself as a priority objective a dismantling of the Eurozone, a strategy of broad union, including with forces of the right, appears not only logical but also necessary. To try to hide this would lead us up a blind alley. The true question which one must ask therefore is of knowing whether one must make of this dismantling of the Euro a priority. And, on this point, Fassina as well as Oskar Lafontaine and many others are answering affirmatively.

The presence of Jean-Pierre Chevènement[20] at the sides of Nicolas Dupont-Aignan at the summer university of Debout la France is one of the first signs in this direction. But this gesture – which is in the honor of both men – remains insufficient. In time, the question of the relations with the Front National, or with the party, which will emerge from the latter, will come up. One must understand very clearly that it is no longer the time for sectarism and bannishments pronounced by the ones as well as by the others. The question of political virginity which seems so much to obsess the people of the left, is akin to biological virginity in that it comes up only once. Even if, and this is quite normal, every movement, every party seeks to keep its specificities, there will be the need for a minimum of coordination so that one will be able indeed to march separately but strike together. This is the condition sine qua non of future successes.

Yet we must be aware that the constitution of these « National Liberation Fronts » is raising redoubtable problems. They will have to include a true program of « salut public » which governments coming out of these « Fronts » will have to implement not only in order to dismantle the Euro, but also to organize the economy on « the day after. » This program implies a particular effort in the domain of investments, but also new rules for the management of money, as well as new rules for the action of the state in the economy. Moreover, this program will need to imply a new conception of what the European Union will be and, in the case of France especially, a general reform of the tax system. One shifts then gradually from a logic of exit or of dismantling of the Euro, towards a logic of reorganisation of the economy. Such a shift is inevitable, and we have a great historic precedent for it, the program of the CNR (Conseil National de la Résistance) during World War Two. The Resistance did not only see its objective in chasing the German army from the French territory. It was aware that one would have to rebuild the country and that this reconstruction could not be done as a copy of what had been done before 1939. This is the point at which we have arrived at today.

The idea of National liberation Fronts is therefore a very powerful idea, be it in France or in Italy. But it implies that, at least at the left, the logic of the “front” be reappropriated and that one understands that in this type of “front” vast disagreements can subsist, which are – temporarily – swept aside and into the background by a common purpose. The true question being the one of the autonomy of expression and the existence of political forces of the left within these fronts. One will have to be very careful therefore that the institutional forms which these fronts can take on, not be contradictory with political autonomy.

Does the failure of the so-called radical left open the door to extremists?

What has happened is by no means a failure of the so-called radical left. What is occurring in Greece is, in fact, a clarification. And it is both symbolic and important that a man such a Romano Prodi, who was President of the European Commission and Prime Minister of Italy, is talking on this subject as of a « German Blitz »[21]. The Greek crisis has shaken to the depths the wobbly foundations of the European construct. But if the radical left doesn’t succeed in overcoming its prejudices and reticence, some of which are justifiable, concerning the sovereignist movements, and if the alliance of « fronts of national liberation » of which Fassina is talking in his appeal fails, then – yes – there is a high risk that voters in the various countries fall into the arms of extremist movements. One can think therefore that the Golden Dawn party can look at good days ahead for itself in Greece. This is why, and I insist on this point, one will have to leave sectarianism, putative motives and anathema in the locker room. From this point of view, the attitude of J-L. Mélenchon refusing to be on the same stand than Nicolas Dupont-Aignan is puerile. One loses one’s political virginity only once and he lost his in the unconditional support he gave to François Hollande in 2012. In the CNR, there were both communists and militants of the Action Française. He will have to change imperatively if he wants to weigh in on the debate or then he will have to argue very precisely what for and why he refuses to participate in a possible « front. »

Yanis Varoufakis will meet Arnaud Montebourg during the week-end. A media show, or the beginning of a promising alliance?

Both, certainly, for they are strong personalities and moreover two people who know well how to utilize the symbols of which they are the carriers ! One can count on Arnaud Montebourg, as well as on Yanis Varoufakis, to make a Show on August 23 at the « Fête de la Rose » in Frangy-sur-Bresse[22]. Which, by the why, is in the logic of things and is no obstacle. To make a Show guarantees that the media will talk about you and your projects. But it would be deeply erroneous to see in this merely a show. In fact, the stakes of the encounter are very real and go well beyond a media « coup.”

The stakes reside in the potentiality of associating to this alliance which is taking shape, some segments of socialist and socio-democratic forces. For this anti-Euro alliance which is gestating in Europe implies, in order for it to succeed, a disarticulation of the currently socialist (or socio-democratic) apparatus, which has become the main obstacle to implementing alternative policies in Europe. One can by the way appreciate the fear which this dynamic is sending through socialist hierarchs by judging the measure of venom which NouvelObs and Rue89are pouring over these two men[23]. The necessary disarticulation is the first phase in a process of reconstruction on broadly different bases. One can notice, moreover, that it does not reduce itself to the apparatus in question. The debate running across the PCF, opposing part of its direction to part of its militants on this point[24], is just as important, even if it is more subdued, for the direction of the French Communist Party knows how to stifle public expression of debate. From this point of view, Arnaud Montebourg, but this is true also of the famous « trouble-makers » of the Socialist Party, will need to clarify very rapidly his position concerning the Euro for, between the anti-Euro alliance and the social-liberal forces surviving, there will soon be no place left to stand.

[14] Bibow, J., “Global Imbalances, Bretton Woods II, and Euroland’s Role in All This.” in J. Bibow and A. Terzi (edits.), Euroland and the World Economy—Global Player or Global Drag? London, Palgrave, 2007.

This blog aims at the dissemination of some of my research works, including working papers, position papers or brief notes focusing either on the Russian economy (from macroeconomy to regional economics and finance) or on the European one, with a special attention to the Eurozone crisis.